1992 (1) TMI 165 - AT - Income Tax

Assessment Order, Orders Prejudicial To Interests, Retrospective Effect, Tax Authorities, Valuation Report, Words And Phrases

Issues Involved:
1. Validity of the Commissioner's revisionary order under section 263 of the Income-tax Act.
2. Whether the valuation report received after the assessment can form part of the record for revisionary purposes.
3. Compliance with principles of natural justice in the valuation process.
4. Legality of considering undisclosed investment in construction over multiple years.

Detailed Analysis:

1. Validity of the Commissioner's Revisionary Order under Section 263:
The Commissioner of Income-tax, Visakhapatnam, found the assessment order dated 9-2-1988 to be erroneous and prejudicial to the interest of the revenue due to the difference between the estimated cost of the cinema hall by the Valuation Cell (Rs. 21,12,407) and its admitted value (Rs. 18,05,401). The Commissioner issued a notice under section 263, proposing to set aside the assessment for being redone in accordance with law. The Commissioner held that the ITO's failure to consider the valuation report resulted in an under-assessment of Rs. 3,07,006, which should be treated as unexplained investment under section 69 of the IT Act. The appeal against this order contended that the assessment order was neither erroneous nor prejudicial to the revenue, and the revisionary proceedings were initiated without proper inquiry or adequate opportunity to the assessee.

2. Whether the Valuation Report Received After the Assessment Can Form Part of the Record for Revisionary Purposes:
The assessee argued that the valuation report received after the completion of the assessment should not form part of the assessment record and thus cannot be the basis for a revisionary order under section 263. The Commissioner, however, set aside the assessment and directed the ITO to make a fresh assessment after giving the assessee an opportunity to file objections to the valuation report. The Tribunal referred to the Calcutta High Court decision in CIT v. S. M. Oil Extraction (P.) Ltd. [1991] 190 ITR 404, which upheld the validity of a revisionary order based on a valuation report received subsequent to the assessment. The judgment emphasized that the term "record" under section 263 includes all records related to any proceeding under the Income-tax Act available at the time of examination by the Commissioner.

3. Compliance with Principles of Natural Justice in the Valuation Process:
The assessee contended that the valuation report violated the principles of natural justice as the Valuation Officer did not inform the assessee of the material or statistical data considered in the valuation. Citing cases like A. S. Suresh Shenoy v. WTO [1984] 149 ITR 65 (Ker.) and J. K. K. Natarajah v. WTO [1983] 142 ITR 804 (Mad.), the assessee argued that the report should be null and void. The Tribunal, however, noted that the reference to the Valuation Cell was made under section 131 of the IT Act, not under section 16A of the WT Act, and thus the procedural requirements of section 16A did not apply. The Tribunal concluded that the valuation report could be used as an advisory opinion under section 131 without violating natural justice principles.

4. Legality of Considering Undisclosed Investment in Construction Over Multiple Years:
The assessee argued that the addition towards undisclosed investment made in one year (1984-85) implied that the entire undisclosed investment was made in that year, which was not the case as the construction spanned from 1981 to 1983. The Tribunal referred to the Cochin Bench decision in ITO v. Dr. R. P. Patel [1987] 59 CTR (Trib.) 105, which held that the ITO must pinpoint the investment made in the relevant accounting year and add only the excess amount not recorded in the books for that year. The Tribunal found that since the DVO did not specify the year-wise investment, the direction to add Rs. 4,23,407 was unjustified.

Conclusion:
The Tribunal upheld the Commissioner's revisionary order under section 263, concluding that the valuation report, although received after the assessment, formed part of the record and could be used for revisionary purposes. The Tribunal dismissed the assessee's appeal, finding no merit in the arguments against the revisionary order. The Tribunal emphasized that the definition of "record" under section 263 is retrospective and includes all proceedings related to the assessment, thus supporting the Commissioner's jurisdiction to revise the assessment based on the valuation report.

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